Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

8. Fair Value Measurements

ASC 820, “Fair Value Measurement,” establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:

Level 1: Quoted prices for identical assets or liabilities in active markets which the Company can access

Level 2: Observable inputs other than those described in Level 1

Level 3: Unobservable inputs

Cash Equivalents

The Company’s cash equivalents are highly liquid investments with original maturities of three months or less, which represent an asset the Company measures at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets. The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.

Foreign Currency Contracts

The Company addresses market risks from changes in foreign currency exchange rates through a risk management program that includes the use of derivative financial instruments to mitigate certain balance sheet foreign currency transaction exposures. The Company uses foreign currency forward contracts as a part of its strategy to manage exposures related to foreign currency denominated monetary assets and liabilities.

Contingent Consideration

On December 14, 2016, the Company acquired certain video signal processing and management technologies used in medical visualization solutions. Under the purchase and sale agreement, the owners are eligible to receive contingent consideration based on the achievement of certain revenue targets from 2018 to 2021. The undiscounted range of possible contingent consideration is zero to €5.5 million ($6.6 million). If such targets are achieved, the contingent consideration would be payable in cash in four installments from 2019 to 2022. As the acquired assets did not meet the definition of a business, the fair value of the contingent consideration is recognized when probable and estimable and is capitalized as part of the cost of the acquired assets. Subsequent changes in the estimated fair value of this contingent liability are recorded as adjustments to the carrying value of the asset acquired and amortized over the remaining useful life of the underlying asset. In December 2017, the Company recorded an estimated fair value of $1.3 million in contingent consideration, which was reported as a long-term liability in other liabilities on the consolidated balance sheet as of December 31, 2017. Based on 2018 revenue performance and the most recent revenue projections for fiscal years 2019 to 2021, the fair value of the contingent consideration was adjusted to $3.4 million, which is reported as a long-term liability in other liabilities on the consolidated balance sheet as of December 31, 2018.  

On February 19, 2015, the Company acquired Applimotion Inc. (“Applimotion”). Under the purchase and sale agreement for the Applimotion acquisition, the shareholders of Applimotion were eligible to receive contingent consideration based on the achievement of certain revenue targets for fiscal years 2015 to 2017. If such targets were achieved, the contingent consideration would be payable in cash in two installments in 2017 and 2018, respectively. The estimated initial fair value of the contingent consideration of $1.0 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. As a result of Applimotion’s fiscal year 2015 and 2016 revenue results, contingent consideration of $1.2 million was paid in the first quarter of 2017. Based on Applimotion’s fiscal year 2016 and 2017 revenue results, the fair value for the remaining contingent consideration was adjusted to $2.8 million as of December 31, 2017. The Company paid $2.8 million as the final Applimotion contingent consideration payment in January 2018.

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

			Quoted Prices in				Significant Other
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	4,288	$	4,288	$	—	$	—
Prepaid expenses and other current assets:
Foreign currency forward contracts		15		—		15		—
	$	4,303	$	4,288	$	15	$	—
Liabilities
Accrued expenses and other current liabilities:
Foreign currency forward contracts	$	182	$	—	$	182	$	—
Other liabilities:
Contingent consideration - Long-term		3,376		—		—		3,376
	$	3,558	$	—	$	182	$	3,376

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (in thousands):

			Quoted Prices in				Significant Other
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	2,665	$	2,665	$	—	$	—
Prepaid expenses and other current assets:
Foreign currency forward contracts		150		—		150		—
	$	2,815	$	2,665	$	150	$	—
Liabilities
Accrued expenses and other current liabilities:
Contingent consideration - Current	$	2,800	$	—	$	—	$	2,800
Foreign currency forward contracts (1)		—		—		—		—
Other liabilities:
Contingent consideration - Long-term		1,304		—		—		1,304
	$	4,104	$	—	$	—	$	4,104

(1) The unrealized loss from foreign currency forward contracts was nominal as of December 31, 2017.

During the years ended December 31, 2018 and 2017, there were no transfers between fair value levels.

Changes in the fair value of Level 3 contingent consideration for the year ended December 31, 2018 were as follows (in thousands):

	Contingent Consideration
Balance at December 31, 2017	$	4,104
Payments		(2,800	)
Fair value adjustments		2,072
Balance at December 31, 2018	$	3,376

As of December 31, 2018, the significant unobservable inputs used in the fair value measurement of the Company’s contingent consideration were historical revenues, projected revenues and a discount rate. Increases or decreases in the unobservable inputs would result in a higher or lower fair value measurement.

See Note 12 for discussion of the estimated fair value of the Company’s outstanding debt and Note 14 for discussion of the estimated fair value of the Company’s pension plan assets.